Blain’s Morning Porridge 17th Oct 2024 – Rachel Reeves’ Budget Matters
“Never ascribe to malice that which is adequately explained by incompetence.”
Labour might have a massive majority, but they are being mugged in broad daylight by the rump Tories who have persuaded the electorate they’re as bad as they were. That’s not good in an economy requiring big decisions to be taken and delivered competently. Labour is in danger of losing “Grip”.
Great news from the America’s Cup y‘day. Ben Ainslie’s Team GBR Ineos finally pulled back, winning 2 races yesterday. The scoreline stands 4-2 to the Kiwis, but Ben has shown we can win. All he has to do is win the next 5 in the first to 7 series. If he pulls it off… it will be a sign of resurgent Britannia!
Britannia could use some good news right now.
Under no circumstances watch the BBC’s Politics Live show. I had it on ahead of the yacht racing. It promised a discussion on Budget policies. It was profoundly depressing. A sanctimonious Tory gammon spoke loudly over the very earnest Lady from Labour. She was silenced while he presented a Donald Trump masterclass: accusing her of incompetence, lies and falsehoods, while spouting a litany of lies and falsehoods. It doesn’t matter he was a Tory and she, Labour – it’s just kind of depressing this is what passes for politics these days.
Welcome to the Politics of Begrudgery. The primary aim is not to serve or improve one’s nation, but to ensure the other team is unable to do so. Begrudgery is sign of a small nation getting smaller.
That’s a problem for the UK economy where big and expensive decisions are urgently required in terms of national infrastructure, defence, health and welfare, and our future place in the global economy. We can either think big and bold or we can remain bogged down the weeds of centralised indecision and become an irrelevant backwater riven by poverty and inequality.
The new Labour government are not necessarily bad people, but they are flolloping. The Tories spotted weakness in Labour’s message and its’ first 100 days missteps – and have exploited them ruthlessly. Not a stone has been left unturned and then thrown. In the grand scheme of things, free clothes and tickets to concerts are de-minimus, but now, the Tories – without a hint of hypocrisy – have made them matter. The decision to end Winter-Fuel subsidies was tough but pragmatic – others like it need to be made. But you’d think Labour had just committed the most heinous act of Grannycide in human history from the noise fermented around it.
The Tories are loving this. The are in their element, demonstrating the one thing they have a natural competency for – undermining rivals. They are attacking ruthlessly and effectively. If doesn’t matter what Sir Keir Starmer, Rachel Reeves or others say or do – their every action and utterance is shouted down, broken apart, questioned and rubbished. The Tory attack strategy its absolutely perfect.
It’s called…. Politics. It’s working. Reform would apparently win a UK election if it was held tomorrow.
Labour don’t seem to have a counter. Dull Sir Keir and his miserable band of nice, earnest, presentable young technocrats (or “The communist sleeper cell intent on wrecking Britan”, says the Torygraph), haven’t a clue how to enthuse the electorate when faced with rabid right-wingers. They are not political performers in an era when performance politics counts, and form-over-substance politics wins. As the Tories drive widening cracks through Labour’s multiple divisions, Labour seem to lack resilience or any effective counter.
Thus far, all the government has done is the blame the Tories for the mess they’ve inherited. Even the IFS accepts Reeves claim of a $22 bln budget hole is genuine, but you will never hear a Tory acknowledge it, preferring to claim government finances were pristine. Which clearly they were not.
We need some thinking out the box…
If I was Sir Keir, my first step would be setting the dial on Angela Rayner up to 5, sharpen her teeth, and unleash her on the other side. (Ask Alasdair Campbell to script her.) If it gets messy… then don’t apologise. Go again. And again. Politics is a knife fight – Labour needs to bring a machine gun. (Only joking… don’t want anyone accusing me of advocating violence in Westminster.. but…. ) C’mon.. Angela Rayner may not be the establishment’s cup of tea, but she’s more in common with the electorate than the entire blue benches. Make her the next John Prescott.
As for the economy?
Fermented political instability and undermining confidence in the economy scores political points, but does little to create jobs or growth. Unless Labour respond effectively, and demonstrate success, we are increasingly likely to get a compromised and defensive government failing to deliver the competency and strategic change required to put the economy back on track. (And before you dismiss me as a Labour apologist – I’ve voted Tory more times the last decade than Labour…. Just not recently.)
This is why the Rachel Reeves Budget – actually a spending review – at the end of the month matters. It has to reverse the negativity and stabilise the base. It needs to show… GRIP. The electorate have been fed horror stories about freezing pensioners, NHS neglect, unbounded immigration, wealthy entrepreneurs fleeing the nation, tax raids, pensions heists, national insurance hikes, etc. The $22 bln budget hole inherited from the Tories has now grown to $40 bln just to stand still.
The quandary is Broken Britain can’t be left unrepaired indefinitely. The longer it is left unfixed, the more it will cost to repair as it is decaying in a quadratic fashion. The Tories knew this, knew they would likely lose, so put off any decisions. Reeves has to take the hard spending decisions. She has to perform – and the jury is out whether she can.
The problem is the need to for cash is growing even faster. The $40 bln to stand still on spending today will be $46 bln next year. The only ways to spend more is for the country to earn more through growth, tax more or borrow more.
- Growth will follow competency and strategic change – which, as noted, are being undermined at every opportunity.
- Higher Taxes will simply diminish discretionary spending and pressure struggling sectors if they face higher employment costs. It may be possible to tweak the numbers on the edges, like higher CGT on shares (as is currently being proposed).
- Borrowing could be increased – but this Government is scared witless by the threat its repeats the Liz Truss moment. The cosmetics of the gilt market could be tweaked by some judicious redefinitions and liability management to make the numbers appear smaller.
I’d be advising the Government to sound tough on borrowing to maintain its edge, but to look at using debt – judiciously – to finance a special infrastructure rebuild programme, particularly in energy. Defence should be a bigger priority. And deliver some wins with Europe!
And they need to show some Grip!
Out of time, and back to the day job..
Bill Blain
Author of the Morning Porridge, founder of Wind Shift Capital
6 Comments
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There is as ever much on which we disagree although I do believe that the new Labour crew does need to be given some time how to learn to be in government and no longer in opposition. It’s a tough ask although, and here we are not on the same page, they have frittered away their first 100 days.
Reeves is right; we must cut our suit to match our cloth and I agree that the first cut was applied in the right place. I shall await the budget before passing further judgement although one must add that the nasty language they are copping from the Tories was brought to the dictionary by the people now in power, not least of all by Angela Raynor. Who live by the sword……
They have a majority in the house of commons.
And that is all…
Almost no-one I know voted for them because they supported their vacuous Tory-lite agenda, just because they wanted shot of the actual Tories.
So now we have red Tories that absolutely no-one likes.
They can do what they want for 5 years due to the number of MPs they have but pretty much everyone hated them before the last election, never mind now.
As a reminder, that no-one dared to mention the day after the election, Jeremy Corbyn got more votes than Starmer in 2019 in what was apparently Labour’s “worst election since 1935” (and one that he couldn’t win due to Starmer’s sore loser referendum policy).
Bill, is there a case for some form of municipal bond market where local people can finance local infrastructure ? It has not been tried for decades but with reducing inflation, some kind of hypothecated bonds for roads/ community centres etc could reinvigorate local government. It was emasculated ( financially) by the Thatcher era when the ‘loony left’ needed reining in. I suggested this to a Thatcher minister at the time and was told the Treasury would never put up with tax free bonds( a la US type) so you would have lower coupons than gilts . Instead of cash ISAs why not tax free local bonds ? It would help with local loyalties and interest in financing the environment around us….just a thought.
Starmer has another 100 days to put behind him the mismanagement/ bad optics he has overseen so far. if he does not turn it around we might see a leadership challenge from the left.
Heartily agree bar only turning Angela Rayner up to 5. Surely they have to go full Spinal Tap and set her at 11?
2001’s Mean Machine has a dial on his head… goes up to 5. I would make it 6. “Because that is more..”